Braathens ASA

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Braathens ASA

Oksenoyveien 3
P.O. Box 55
1330 Fornebu
Norway
Telephone: + 47 67 59 70 00
Fax: + 47 67 59 70 10
Web site: http://www.braathens.no

Public Company
Incorporated: 1946 as Braathens South American & Far East Airtransport A/S
Employees: 4,000
Sales: NKr 6.74 billion ($768 million) (2000)
Stock Exchanges: Oslo
Ticker Symbol: BRA
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 481212 Nonscheduled Chartered Freight Air Transportation; 481211 Nonscheduled Chartered Passenger Air Transportation

Braathens ASA is Norway’s largest airline. Most of its destinations are in Sweden and Norway, though Braathens has been affiliated with the KLM/Northwest global airline alliance. Thanks to the country’s fjords and mountains, Norwegians take more plane trips per year per person than any other nationality except U.S. citizens.

Shipping Origins

Ludvig G. Braathen founded one of the largest shipping lines in Norway, Ludv G Braathens Rederi A/S, in 1926. Twenty years later, the airline bearing his name was started. The launch was delayed a decade by government intervention and war.

As Kjell Oskar Granlund details in Airways, Braathen had seen the potential of air freight as early as 1936, when he used KLM to deliver a replacement propeller shaft to a ship stranded in Jakarta. In 1937 he made the same pilgrimage as other European aviation pioneers, that of touring aircraft factories and airlines in the United States. He discussed the possibility of launching a transatlantic airline with Bernt Balchen of the prewar Det Norske Luftfartselskap (DNL). The following year (1938), Braathen unsuccessfully applied for rights to fly to the United States. Soon, World War II intervened: unlike Denmark and Sweden, Norway fielded no civil aircraft of its own during its occupation by Nazi Germany.

DNL was reestablished after the war as Norway’s preferred scheduled airline. At practically the same time, Braathens South American & Far East Airtransport A/S (Braathens SAFE) was created to provide ad hoc charter services with Douglas war surplus cargo aircraft. It was incorporated on March 26, 1946.

Initially, Braathens found more demand for flights to the East than to the West. The first flight, Oslo-Copenhagen-Paris-Cairo, departed on January 30, 1947. Soon, Braathens SAFE was flying to Hong Kong via Amsterdam, Marseille, Cairo, Basra, Karachi, Calcutta, and Bangkok.

The success of Braathens SAFE was bringing it into contention with Scandinavian Airlines System (SAS). SAS was at the time a regional alliance of the state-sponsored airlines of Norway (DNL), Denmark (Det Danske Luftfartselskap or DDL), and Sweden (Svensk Interkontinental Lufttrafik AB or SILA). Braathens SAFE’s license to fly to Hong Kong was suspended in April 1954 to keep it out of competition with the ever expanding SAS, which, notes Kjell Granlund, did not actually fly to Hong Kong until 1992.

In 1952, Braathens forged an alliance of its own with Loft-lei’ir Icelandic Airlines, which had licenses to fly to both Europe and the United States. The decade-long cooperation between the two airlines extended to sharing aircrews and planes.

As compensation for losing its Far East routes, Braathens was allowed to begin domestic service between Oslo and Stavanger and between Oslo and Trondheim in August 1952. Braathens added another local destination when it took over an airline based in Bergen in 1958. The airline, Vestlandske Luftfartselskap, had been founded, like Braathens, by shipping interests as a charter company after the war. In subsequent years, Braathens agreed to limit its range to southern Norway, while SAS concentrated on the north.

In 1959, Braathens began flying charters to the island of Spitzbergen for the mining company Store Norske Spitsbergen Kulkompani. The ground at the landing strip was frozen solid enough to support planes during the winter months only, which conveniently coincided with the closing of the fjord to sea traffic. Traffic grew and a proper airport was constructed eventually, but the government awarded the route to SAS during the early 1970s.

Jets in 1969

Braathens began operating Boeing 737 jets in January 1969. Although a few Fokker F28 jets arrived a couple of months later, Braathens would remain loyal to Boeing for decades.

Company founder Ludvig G. Braathen died in 1976 and was succeeded by his son Bjorn. Erik G. Braathen, grandson of the founder, took over in 1989. Braathens had recently standardized the fleet with the Boeing 737. Norway was developing plans to deregulate its air industry along European Union lines (though the country was not itself a member).

During this time it was proposed that SAS should take over Braathens SAFE. The Braathen family opposed this and instead listed the company on the Oslo stock exchange.

Deregulation in 1994

Norway’s airline industry was deregulated on April 1, 1994. Braathens seemed to fare well at first, claiming a 51.8 percent market share in Norway in 1996. At the time, Braathens had a fleet of 25 aircraft, all Boeing 737s. The airline was carrying more than five million people a year. Charter traffic accounted for less than 20 percent of operations in the mid-1990s; the company had made a decision to focus on scheduled services ten years earlier.

Both Braathens and SAS recorded their 50th anniversaries in 1996. Both introduced promotional fares to celebrate— Braathens offered roundtrips within Norway for only NKr 500 ($75).

The new environment allowed Braathens to challenge SAS on the Oslo-Stockholm route in 1996. Braathens acquired a controlling interest in Transwede Airways in the same year, bringing it into the domestic Swedish market. The remaining shares were acquired in 1998, and this unit was renamed Braathens Sverige.

In August 1998, Braathens acquired another Swedish airline, Malmö Aviation, for SKr 600 million ($74 million). Malmö operated a busy route connecting Stockholm with the country’s west coast and was Sweden’s second largest domestic carrier. It earned pre-tax profits of SKr 400 million ($48.8 million) on turnover of SKr 911 million in 1997 and had 11 BAe 146 jets and 450 employees. The acquisition gave Braathens control of a quarter of the domestic Swedish market.

The Braathens SAFE name was abbreviated to simply Braathens A/S in 1998. A new corporate logo was introduced that featured a stylized wing over an aurora borealis.

Changes and Challenges in the Late 1990s

KLM Royal Dutch Airlines acquired 30 percent of Braathens’ stock in 1997 for Fl 200 million (£60 million) and brought the carrier into limited participation in the KLM/Northwest Airlines global alliance. Braathens began making changes to attract more lucrative business class customers. The carrier introduced its first dual class cabins in 1997. At the time, Braathens connected 14 destinations in Norway, seven in Sweden, and another eight in Europe.

Unfortunately, Braathens posted its first loss ever—NOK 23 million ($2.5 million) in 1998. Overcapacity in the domestic market and problems at the new international airport in Gardermoen contributed. The loss exploded to NOK 612 million in 1999.

Upon the retirement of Erik Braathen, the company hired Arne A. Jensen as chief executive in March 1999. Jensen was the first person outside the family to hold this position. Before joining Braathens, he had been chief executive and editor-in-chief of the Norwegian television company TV2. Braathens was not the only one in trouble. SAS was taking losses and Color Air, a domestic Norwegian start-up, stopped flying in September 2000.

Jensen took a number of actions to restore the company’s profitability. Money-losing routes were closed. The engine maintenance division was sold off to Pratt & Whitney.

Flying with SAS in 2001

With bankruptcy looming, an agreement was worked out in May 2001 for archrival SAS to take a controlling interest in Braathens, buying out the 38.8 percent held by the Braathen family and the 30 percent held by KLM. Malmö Aviation, the Swedish operation, was not to be included. At NKr 35 ($6.32) a share, the deal was to value the Norwegian operations at NKr 1.13 billion ($124 million). Norwegian officials strongly opposed the takeover on antitrust grounds, yet had few alternatives to offer.

Company Perspectives:

Braathens is Norway’s largest airline. Our mission is to offer good travel for modern people. We do this primarily through scheduled air service in Norway and Sweden. Additionally we are also part of the global KLM/Northwest alliance with continuous air service from Norway and Sweden to more than 400 destinations in over 80 countries worldwide. Braathens in Norway and Sweden operates on 16 Norwegian destinations, seven destinations in Sweden and 10 destinations outside these two countries.

In the middle of this process, Braathens named a new leader—Mr. Vida Meum. Arne Jensen left to head the information technology group Merkantildata. In November 2001 Meum announced plans to cut as many as 800 of 4,000 jobs, eliminate 20 percent of flights, and dispose of seven aircraft in order to restore the carrier’s profitability.

On November 27, 2001, SAS announced that it was proceeding with its takeover bid, but at a reduced price due to the global downturn in the industry following the September 11 terrorist attacks on the United States. At NKr 27 ($3) per share, the offer valued KLM’s 30 percent stake at NKr 34 million ($30 million). SAS also was buying out other principal shareholders.

Principal Subsidiaries

Braathens Holding AB (Sweden); Braathens (Cayman) Leasing Ltd. (Cayman Islands); Braathens (Cayman) Leasing II Ltd. (Cayman Islands); Braathens (Cayman) Leasing III Ltd. (Cayman Islands); Braathens (Cayman) Leasing IV Ltd. (Cayman Islands); Braathens 737-500 1 1990 AS; Smart Norge AS (30%); Spitsbergen Travel AS (16%); Wings Lojalitetsutvikl-ing AS.

Principal Competitors

Wideroes Flyveselskap ASA.

Key Dates:

1946:: Braathens SAFE is formed by shipping magnate Ludvig G. Braathen.
1952:: Braathens is awarded domestic routes.
1958:: Braathens takes over Vestlandske Luftfartselskap.
1969:: Jet service begins.
1976:: Second generation assumes the leadership of the company.
1994:: The Norwegian air industry is deregulated; Braathens goes public.
1996:: Control of Transwede Airways is obtained.
1997:: KLM acquires 30 percent of Braathens stock.
1998:: Malmö Aviation is acquired.
1999:: Arne Jensen becomes first executive outside Braathen family to lead the airline.
2001:: SAS agrees to acquire controlling interest in Braathens.